Changes ahead post EU elections as the main parties lose their 40 year grip
What’s been happening?
Pound Sterling – UK Markets
The British pound finally staged a rebound and closed the day higher against both the dollar and the euro to snap its losing streak boosted by a relief-rally after British Prime Minister Theresa May, who faced intense criticism from Brexit-supporting lawmakers after her new Brexit deal included an option to hold a second referendum, announced her resignation.
“I've done everything I can to convince MPs to back my deal. It is a matter of deep regret that I have not delivered Brexit and will step down on June, 7th,” May said in a press conference. Now investors are likely to give a rest to the sterling selloff while waiting for the new PM to replace May. While speaking to reporters on the sidelines of an economic conference in Switzerland, British lawmaker Boris Johnson, who is one of the candidates to replace May, said that that they would leave the EU on October 31 whether or not they have a deal. “You have to be prepared to walk away from the table to get a good deal, to get this thing done you have to be prepared to walk away with no deal,” Johnson stated, hinting that a no-deal is still one of the possible outcomes.
Commenting on May’s decision, “There can be no plan for Britain without a plan for Brexit. Winner takes all politics is not working. Jobs and livelihoods are at stake,” Carolyn Fairbairn, Director-General of the Confederation of British Industry, said. “Business and the country need honesty. The nation must be put ahead of party, prosperity ahead of politics. Compromise and consensus must refind their voice in Parliament.”
Responding to PM May’s announcement, European Commission spokeswoman Mina Andreeva reiterated that the EU’s position on Brexit was still unchanged. “The EU’s preference is orderly withdrawal on basis of an agreement that has been negotiated with the UK,” the spokeswoman added.
Meanwhile, the data published by the UK’s Office for National Statistics (ONS) showed that retail sales remained unchanged on a monthly basis in April to better the market expectation for a decline of 0.3%. On a yearly basis, saşes expanded by 5.2%.
US Dollar – US Markets
The greenback weakened against its major rivals for the second straight day on Friday pressured by the disappointing data. The U.S. Census Bureau announced that durable goods orders declined by 2.1% on a monthly basis in April following March’s 1.7% growth. Other details of the report revealed that durable goods orders excluding defence contracted by 2.5% in the same period. The US Dollar Index, which tracks the dollar’s value against a basket of six currencies, continued to pull away from the 2-year high that it set yesterday and lost 0.4% for the week.
On latest headlines surrounding the U.S.-China trade dispute, Chinese envoy to the U.S. said there were no official scheduled talks between President Xi and his American counterpart Donald Trump. “China sees talks as the only way out of the trade dispute with the U.S.”
Euro – European Markets
There were no macroeconomic data releases from the euro area on Friday and the shared currency took advantage of the broad-based greenback weakness while posting losses vs the pound sterling. European Central Bank (ECB) Governing Council member Vasle on Friday argued that the economy was still in line with the bank’s projections from March. “At this stage, the economy is strong enough,” Vasle added.
Over the weekend, the European parliamentary elections showed a shift towards the so-called populist parties. In the UK - the Brexit Party, led by arch EU critic Nigel Farage swept the board while Marine Le Pen's Rassemblement National (RN) beat Emannuel Macron's Renaissance alliance by a surprising margin. In Italy, the 5-Star movement saw a sharp decline when compared to last year’s general election but Italy's Deputy Prime Minister and 5-Star leader Luigi Di Maio said he had no intention to resign and added that no one had asked him to do so. The mixed market reaction to the election outcome didn’t cause sharp fluctuations in the shared currency but the Germany bond yield dropped to its lowest level since early 2016, hinting at a flight to safe assets and suggesting that the euro could come under pressure in the coming days.
What’s coming up?
UK: The Bank of England Inflation Report Hearing is scheduled to take place on Tuesday.
US: The Conference Board will release its consumer sentiment Survey alongside the Dallas Fed’s Manufacturing Index and the S&P/Case-Shiller House Price Index.
EU: The European Commission will publish its latest Consumer & Business Sentiment Survey, which will include the consumer confidence, services sentiment, business climate, and industrial confidence indexes, on Tuesday.